Surety liability survives partial statutory discharge where unpaid debt remains enforceable despite dismissal against the principal debtor.

A contract of guarantee creates accessory liability, so a surety remains bound unless the principal debt is extinguished or the surety is otherwise discharged by contract or law. Under the nationalisation statute, the debtor's undertaking was transferred to the State and claims were to be paid through the statutory compensation mechanism, but unpaid or rejected liabilities were not wiped out. Liability was discharged only pro tanto to the extent of admitted and paid claims, and the guarantees preserved remedies. Mere forbearance, non-appeal, or dismissal of the suit against the principal debtor on the basis of an alternative statutory remedy did not discharge the sureties; the balance remained enforceable against them.

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Issues: Whether the nationalisation statute extinguished the principal debtor's liability so as to discharge the sureties, and whether the dismissal of the suit against the principal debtor barred enforcement against the sureties.

Analysis: A contract of guarantee creates an accessory liability, but the surety remains liable unless the principal debt is extinguished or the surety is otherwise discharged under the contract or by law. The statutory scheme of the nationalisation enactment transferred the undertaking to the State and provided a mechanism for adjudication and disbursement of claims out of compensation, but it did not wipe out every unpaid liability of the owner. Liability stood discharged only to the extent claims were admitted and paid under the statute, while rejected or unpaid claims remained enforceable outside the statute. The guarantees also contained a reservation of remedies, and mere forbearance or non-appeal against the principal debtor did not discharge the sureties. The dismissal of the suit against the principal debtor was on the ground of statutory alternative remedy and not on a merits-based extinguishment of the debt.

Conclusion: The sureties were not discharged by the nationalisation statute, and the claim could be enforced against them for the balance remaining unpaid; the objection based on the dismissal against the principal debtor failed.

Ratio Decidendi: Where a statute discharges a principal debtor only pro tanto and preserves unpaid liabilities, the surety is not released unless the debt itself is extinguished or the guarantee otherwise so provides; mere statutory alternative remedy or forbearance against the principal debtor does not discharge the surety.

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